Gold rises on lower shares, China’s central bank monetary move

London (Feb 4)  Gold rose on Wednesday, after falling more than 1% in the previous session, as European shares dropped and after China’s monetary move to boost liquidity and help combat slow growth.

China’s central bank cut the amount of cash that banks must hold as reserves on Wednesday, the first industry-wide cut since May 2012.

Spot gold was up 0.7% at $1,268.30 an ounce by 11.08am GMT, after posting its fourth drop in five sessions, down 1.2%, on Tuesday.

"Gold’s rally this year has partly been based on this premise that central banks are losing their fight against slower growth and deflation and are having to take even more radical monetary policy measures and this plays into that narrative," Macquarie analyst Matthew Turner said.

"But it’s also because China is a huge consumer of gold and economic growth should boost demand. That said we’re really talking about impact on the margin."

Increased central banks’ liquidity favour gold as low interest rates encourage investors to put money into the non-interest-bearing assets. But while major economies such as China and Europe continue to pump liquidity into their systems, the US is moving towards a tightening cycle.

Spot prices have largely retreated from a five-month peak of $1,306.20 on January 22, paring the metal’s year-to-date gain to less than 7%. US gold for April delivery rose 0.6% to $1,268.50/oz.

Gold rose in spite of a stronger dollar, which rose 0.2% against a basket of leading currencies, helped by a jump in US Treasury yields.

Investors will monitor the monthly ADP private payrolls and ISM non-manufacturing figures later in the day. On Friday, US non-farm payrolls data will be released.

"The US data this week is part of the big picture, if the figures surprise on the upside, they could add to the view that the Fed will hike rates in June," Natixis analyst Bernard Dahdah said.

In other markets, European shares dropped as appetite for risk diminished and the euro eased after optimism regarding a possible new debt deal for Greece cooled.

Greece’s new government dropped calls for a write-off of its foreign debt and proposed ending a standoff with its official creditors by swapping the debt for growth-linked bonds.

The world’s largest gold-backed exchange-traded fund, SPDR Gold Trust, said its holdings slipped to 24.59-million ounces on Tuesday from 24.65-million ounces the day before, which was the highest level since October.

Spot silver rose 0.8% to $17.42/oz.

Palladium gained 1.4% to $792.30/oz and platinum was up 0.8% at $1,240.25/oz.

Source: Reuters